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Pam Buettner

How the Next Homebuyers Are Digging Out of Debt

Coming out of a historical age of debt and slow wage and career growth, the next wave of homebuyers are finally whipping up some optimistic lemonade.

Based on a National Association of Realtors (NAR) annual survey, people between the ages of 19 and 37, or the generation known as Millennials, were the most active home buying generation in 2017. Last year, 36% of all home sales involved Millennials. This recent data maps out the future of home buying and the Millennials’ journey navigating this important purchase.

Realize the Reality

Before we keep going, here are some Millennial-tailored touchpoints:

  • Many graduated college during or shortly after the Great Recession, which ended in 2009.
  • This forced many to take lower-paying jobs, setting back their careers. 
  • Now they’re digging out.
  • The average credit score has climbed to 638, four points from 2016. This jump was higher than any other generation in 2017.
  • Overall debt shaved by 8%.
  • Increased mortgage debt to $198k, which is 6 percentage points higher than last year’s.

Although more Millennials are buying homes, the numbers should be higher. Once upon a time (in 2004), the homeownership rate for buyers under the age of 35 was 43%, 7 points higher than the current statistic. Some noted reasons are because of housing affordability and the infamous student loan debt. NAR points out that this changes the direction of where houses will be filled. In coastal areas, affordability and low inventory are going to be bigger hurdles. In other areas, wages and student loan debt play a bigger role.

Recognize the Ratio

By 2021, nearly 25 million people will be between the ages of 29 to 32, the age when most people start thinking about their permanent address. As they age, debt-induced needs should be recognized by the mortgage market. Lenders have been steering more Millennial borrowers into conventional loans, away from the Federal Housing Administration (FHA) program. Among loans closed in January, Ellie Mae reported 67% of the mortgages taken out by young home buyers were conventional, while 28% were FHA-backed loans.

Return of the Returns

Many who put off home purchases now have opportunities to build their wealth. Accommodating the slow growth, new loan programs gaining traction around the country incorporate higher loan-to-value, lower requirements for down payment, and down payment assistance. Fannie Mae and Freddie Mac have rolled out programs to allow borrowers to carry more overall debt in relation to their income, as looser debt-to-income ratio requirements have likely had biggest impact in attracting more Millennial home buyers.

The economy has improved and they are in position to improve their financial standing, but housing and mortgage industries need to follow in their footsteps or risk losing their business.

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